Energy, Grains Lead Commodities Lower on Economic Concerns

Energy and grain prices led commodities lower on speculation a faltering global economic recovery will erode demand.

Crude oil fell to a five-week low, corn dropped to the cheapest in four months and soybeans tumbled more than 4 percent. U.S. gasoline demand over the July 4 holiday fell 2.6 percent, according to AAA, the largest motoring organization. Grains have dropped after the U.S. government said last month that farmers planted more acreage than forecast in March.

Government stimulus plans to counter the first global recession since World War II sent commodities higher in the first half, led by gasoline and industrial metals. Earnings at companies from Ford Motor Co. to ArcelorMitttal may decline in the next three months as the highest unemployment in a quarter- century damps consumer spending.

“There’s a lot of excess production and not that much demand,” said Barry R. James, who holds Exxon Mobil Corp., Chevron Corp. and ConocoPhillips shares among the almost $2 billion in investments he manages at the James Advantage Funds in Dayton, Ohio. “We don’t see much of a recovery.”

The Standard & Poor’s GSCI Index of 24 commodities dropped as much as 4 percent to 418.5, the lowest since May 26. The S&P 500 Index declined as much as 1.1 percent before rebounding. The MSCI World Index was down for the third straight session.

Before shedding gains, the dollar climbed as much as 0.6 percent against a basket of six major currencies, eroding the appeal of raw materials.

‘Too Much Optimism’

Crude-oil futures for August delivery declined $2.68, or 4 percent, to $64.05 a barrel on the New York Mercantile Exchange. Earlier, the price touched $63.40, the lowest since May 28.

“There was too much optimism in the market,” said Eugen Weinberg, a senior analyst at Commerzbank AG in Frankfurt. “Some of the optimism is flowing out, and with weaker equities and a stronger dollar, the combination is pushing prices lower.”

Corn futures for December delivery fell 13.25 cents, or 3.7 percent, to $3.4425 a bushel on the Chicago Board of Trade. Last week, the price dropped 12 percent, the most in seven months.

Soybean futures for November delivery declined 43 cents, or 4.3 percent, to $9.63 a bushel.

Copper dropped more than 2 percent in New York, and nickel declined 1.6 percent in London.

Copper demand will decline 3.9 percent in 2009, leaving a supply surplus this year and in 2010, according to Deutsche Bank AG. Nickel and zinc will have deficits next year, the bank said. Copper has climbed 60 percent this year as China bought the metal for state reserves.

‘Most Exposed’

A slowdown in investment in China along with “lower bank lending and weaker industrial production growth will eventually trigger a broad-based correction across the industrial-metals complex,” Michael Lewis, the head of commodities research at Deutsche Bank AG, said in a report. “Copper prices are most exposed of the LME metals, given the importance of China in terms of global copper consumption growth.”

Gold futures for August delivery dropped $6.70, or 0.7 percent, to $924.30 an ounce on the Comex division of the Nymex. Earlier, the price reached $920.30, the lowest for a most-active contract since June 23.

Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, has declined after gaining to a record on June 1.

“A stronger greenback has prompted fresh pressure,” James Moore, an analyst at TheBullionDesk.com in London, said in a note. There is “limited physical interest and tepid investment demand,” he said.

source: bloomberg